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Murali Gopalan

Mumbai, May 20 IndianOil, Hindustan Petroleum Corporation and Bharat Petroleum Corporation will end up reporting profits for 2008-09 thanks to a subsidy package of Rs 943 crore for the fourth quarter from ONGC and Oil India made on the directives of the Petroleum Ministry.

GAIL (India) was kept out of this support mechanism this time.

HPCL will be the largest beneficiary of this “last minute formula” at Rs 560 crore, followed by BPCL (Rs 238 crore) and IOC with Rs 145 crore. In the process, ONGC will be poorer by Rs 852 crore and Oil India by Rs 91 crore though neither is likely to make a net loss in the bargain. The latest subsidy package is reportedly intended to make good import losses incurred by the refiners.

According to top sources, the fact that HPCL is getting the lion’s share clearly shows that the company was “on a sticky wicket” and needed to be bailed out at any cost. In fact, it was the only one of the refining trio which made losses in the third quarter of last fiscal and “looked the most vulnerable for the whole year”.

Indications are that HPCL will now end up with a net profit of Rs 100-150 crore for 2008-09 while BPCL’s could be closer to Rs 200-250 crore. “IOC could have still reported profits without this additional support from the upstream companies but denying it anything could have been seen as being too blatant,” sources said.

This is especially because IOC accounts for the largest portion of any compensation package (be it oil bonds or support from ONGC) which is only logical given that it takes the biggest hit when it comes to losses on sale of subsidised fuels. However, this time around, it has got the least compensation from the upstream sector which only drives home the point that HPCL needed help in a hurry.

The irony is that ONGC had ruled out supporting its refining counterparts (by way of discounts on crude and petro-products) in the fourth quarter of 2008-09 as crude prices had fallen to levels of $40 per barrel which was already hitting its bottomline. Along with Oil India and GAIL (India), it had contributed Rs 32,000 crore in the first three quarters of last fiscal while oil bonds worth nearly Rs 61,000 crore took up the rest.

Within ONGC, there is bound to be a degree of consternation at the latest move to fork out more money. “This is a classic case of robbing Peter to pay Paul. This practice of soaking the company each time to support the refiners just cannot go on forever,” an oil industry executive told Business Line.

The harsh reality, though, is that this practice will continue so long as the subsidies on petrol, diesel, cooking gas and kerosene continue. And now with crude prices inching towards the $60 a barrel mark, ONGC will really have little choice but to continue offering discounts to IOC, HPCL and BPCL. This was precisely the core of the Goldman Sachs report on ONGC though it came in for a lot of criticism within the think-tank in New Delhi.

Sources say that all this only reinforces the need to move towards an era of free pricing in the hydrocarbons sector, at least for petrol and diesel.

Way back in the mid-1990s, the Sundararajan (the then BPCL chairman) committee had recommended total deregulation in the hydrocarbons sector.

The Nirmal Singh panel had echoed the sentiment in its 1997 report but successive governments just refused to implement it. Whether this will happen this time around now remains to be seen.

More Stories on : PSU | Petroleum | Oil & Natural Gas Corporation Ltd | Hindustan Petroleum Corporation Ltd | Bharat Petroleum Corporation Ltd | GAIL (India) Ltd

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